Intercontinental Continental Hotel Analysis

Qualitative Analysis

Competitive analysis. The size of the company increased by 5% because of the addition of 9,849 rooms, which comprises 117 hotels, resulting in the general size of 629,700 rooms, that is 4,303 hotels.

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Management: David Webster was Non-Executive Chairman throughout the year. He is also Non-Executive Chairman of Makinson Cowell Limited. He is a member of the Appeals Committee of the Panel on Takeovers and Mergers, and in 2008 was appointed a Director of Temple Bar Investment Trust PLC.

Geographical diversity: US – 69%, Europe, Middle East and Africa (EMEA) – 33%, Asia Pacific – 29%.

Brands: InterContinental Hotels & Resorts, Crowne Plaza, Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites, Priority Club Rewards (Compared to Starwood Hotels and Resorts (9 brands): Meridien, Four Points, Westin, The Luxury Collection, Aloft, Sheraton, Element, St. Regis, W-Hotels).

Access to and cost of capital: the capital comprises the net debt, issued share capital and reserves. Its structure is aimed at minimizing the cost of capital and providing the timely returns to shareholders.

Financial strength: The company possesses 620,000 rooms in many countries worldwide, which allows them to gain profit and achieve customer satisfaction. Revenues from reservations of rooms provide $7.6 billion annually; the Priority Club Rewards members bring earnings to the company at the volume of $5.9 billion. We now directly generate around 60 per cent of room nights at our hotels through our system

Customer mix: customers of the Intercontinental Hotels Group represent a diverse group of population with the major emphasis made on the customers with premium financial possibilities. However, there are also a number of offers intended for the middle class in order to provide satisfaction of demands of the widest range of customers possible.

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Regulation: there are privacy regulations in the Intercontinental Hotels Group, IAS Regulation.

Technology: the company pays particular attention to leveraging their technology and empowering their employees to manage the company system and undertake required training and development individually. They provide multi-faceted and flexible online applications to ensure the highest performance level.

Financial Statement

For the year ended 31 December 2008 2008
$m
2007
$m
Profit for the year 262 463
Adjustments for:
Net financial expenses 101 90
Income tax charge 59 30
Depreciation and amortisation 112 116
Impairment 96 (6)
Other exceptional operating items 34 (56)
Gain on disposal of assets, net of tax (5) (32)
Equity-settled share-based cost, net of payments 31 48
Other non-cash items 3 (4)

Revenue and Earnings. Continued Earnings – up 5% to $1,854mº, gross revenue – up 7%to $19.1bn.

Revenue Base and Mix. The Group derives revenues from base and incentive management fees and provides the system infrastructure necessary for the hotel to operate. Revenues of the managing staff of the company are derived from a percentage they get from the hotel profits, which adds to their stimuli and motives to work harder and provide the higher earnings of hotels they are responsible for.

Cash Flow: Operating activities – $91m (the information represented for the firs half of the year, by June 2008). Disposals are also a source of income and provided $12m of cash. Capital expenditures rose in the first half of the year and constituted $9m together with the maintenance capital expenditure equalling $31m. Expenditures on maintenance on the whole comprised c.$75m.

Profitability Ratios: Profit showed a dramatic decrease from $249m to $149m, which is 40% of the total profit amount registered in 2007. Liquidated damages receipt at the size of $13 m, which may be set aside in the course of analysis, thus giving the real figure of decrease by 37%.

Rev PAR: 0.9%

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Balance Sheet Ratios: ASSETS ( Property, plant and equipment 1,684, Goodwill 143, Intangible assets 302, Investment in associates 43, Retirement benefit assets 40, Other financial assets 152, Total non-current assets 2,364, Inventories 4, Trade and other receivables 412, Current tax receivable 36, Cash and cash equivalents 82, Other financial assets 10, Total current assets 544, Non-current assets classified as held for sale 210, Total assets 3,118), LIABILITIES (Loans and other borrowings (21), Trade and other payables (746), Current tax payable (374), Total current liabilities (1,141), Loans and other borrowings (1,334), Retirement benefit obligations (129), Trade and other payables (392), Deferred tax payable (117), Total non-current liabilities (1,972), Liabilities classified as held for sale (4), Total liabilities (3,117), Net assets 1), EQUITY (Equity share capital 118, Capital redemption reserve 10, Shares held by employee share trusts (49), Other reserves (2,890), Unrealised gains and losses reserve 9, Currency translation reserve 172, Retained earnings 2,624, IHG shareholders’ equity (6), Minority equity interest 7, Total equity 1).

Book Value: At 31 December 2008 – $1,684 mln.

SWOT analysis

Strengths Weaknesses
A significant share in the segment of hotel services
Customer commitment
High performance indicators
Superb quality of provided services
Favorable geographical distribution
Decreasing productivity and revenues

Control weaknesses

Inability to respond to the crisis change in the market promptly

Opportunities Threats
Increasing number of franchising and acquisitions
Expanding the market share
Continuous review and monitoring the performance of regional franchising capacities
Crisis diminishing the number of clients

Fierce competition

Reduction of demand for the supreme quality hotels

TOWS Matrix

External Opportunities
(O)
1. expanding the market share
2. increasing acquisitions
External Threats
(T)
1. competition
2. reduction of number of clients
Internal Strengths
(S)
1. customer commitment
2. strict regulations
3. high performance
SO
“Maxi-Maxi” Strategy
– through customer commitment the company can expand the number of customers in newly acquired hotels
ST
“Maxi-Mini” Strategy
– competitors that offer lower performance indicators will be taken over by a stronger and more productive company
Internal Weaknesses (W)
1. weak control measures
2. wide world distribution
WO
“Mini-Maxi” Strategy
– by increasing acquisitions in strategically suitable locations the company may overcome the weak interconnection of facilities
WT
“Mini-Mini” Strategy
– strengthening control over performance and providing more alternatives for a wider range of clients the company will increase their number and will get more revenues

STEEP Analysis

Social

Declining interest to expensive hotels due to the crisis situation.

Technological: lack of advanced technologies causing the inability to provide for the growing and evolving needs of clients.

Economic: the world economic crisis causing the decline of revenues and personal income.

Environmental: incompliance of certain technologies used in hotels that is likely to dwinde the company’s reputation; impossibility for building new hotels in certain environmentally unsafe territories.

Political: incompliance with political rules and regulations of countries in which the hotels of the company are situated, instability of political situation or a drastic political change.

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History

The history of IHG began in 1977 with the opening of a brewery in Burton-on-Trent by William Bass. The business rapidly developed and turned out to become one of the most successful and popular breweries in the UK. The Bass trademark (red triangle) appeared in 1876, in 1960’s Bass initiates expansion of business by acquiring other breweries and, finally, in 1988, changes the direction of his activities to hotel industry. The first acquisition was Holiday Inn International (1988), then followed the North American Holiday (1990), Holiday Inn Express (1991) and the launch of Crowne Plaza (1994). Further on the business developed quicker and quicker, acquiring a large-scale development tempo, which resulted in the contemporary situation of the IHG being a prosperous and profitable international hotel network.

Vision

  • IHG and owners working to increase asset value
  • Active support of IAHI endorsed IHG initiatives
  • Limited participation from some key segments (HIEX, China)
  • Limited owner involvement
  • Little support for talent recruiting
  • Strong talent development offerings with limited reach
  • No IAHI staff outside of US
  • All communications in English
  • Well-run association
  • Financial stability

Corporate Information

Intercontinental Hotels Group is an international company including 7 worldwide famous hotel brands that provide more than 180 million visitors annually. Their affiliates exist in about 100 countries of the world and comprise 630,000 rooms, which in general is represented by 4,300 hotels. The Intercontinental Hotels Group is characterized by deep customer commitment and continuous care about service improvement and customer satisfaction.

Mission

“Great Hotels Guests Love”

Internal Factor Evaluation Matrix

Strengths Weight Rating Weighted Score
A significant share in the segment of hotel services: the IHG is ahead of the majority of its competitors with the net income of $463.00

Customer commitment: the main stress made by the CEO on this factor and the list of Winning Factors

High performance indicators: the volume of rooms and hotels owned and franchised by the IHG has exceeded all competitors in the sphere and now occupies the first place

Superb quality of provided services: the IHG hotels are aimed at the clients with more than average financial possibilities, thus providing deluxe services

Favorable geographical distribution: hotels are located in Europe, the USA, Middle East, Africa etc (total nearly 100 countries)

Weaknesses Weight Rating Weighted Score
Decreasing productivity and revenues: from the second quarter of 2008 to the second quarter of 2009 the IHG lost many positions in revenue, net income and net margin (from $1.32 bln to – $1.32 bln).

Control weaknesses: vast geographical distribution and centralized management do not correspond to the diversifying needs of the growing business

Inability to respond to the crisis change in the market promptly: the pricing policy of the IHG fails to satisfy the needs of middle class consumers

External Factor Evaluation Matrix

Opportunities Weight Rating Weighted Score
Increasing number of franchising and acquisitions: within the recent period of time – addition of 9,849 rooms, i.e. 117 hotels

Expanding the market share: addition of new hotels and rooms is done in diverse geographical regions

Continuous review and monitoring the performance of regional franchising capacities: the mainboard, the global and regional executives are the main bodies responsible for these functions.

Threats Weight Rating Weighted Score
Crisis diminishing the number of clients: decreasing revenues and net income are eloquent in the aspect of reduction of client base, which can certainly be attributed to the crisis situation in the world, since the IHG did not lose popularity in any case

Fierce competition: the main competitors also gaining strength in the discussed sector are Starwood Hotels & Resorts, InterContinental Hotels Group PLC, Wyndham Worldwide Corp. and Hilton hotels.

Reduction of demand for the supreme quality hotels: heavy impact of the worsening economic situation reduces the number of opportunities to enjoy high quality hotels, with the same category of customers preferring cheaper stays in other hotels.

References

Using the TOWS Matrix. 2009. Web.

What is STEEP analysis? 2009. Web.

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